Number of the Week: Class of 2011, Most Indebted Ever

The Class of 2011 will graduate this spring from America’s colleges and universities with a dubious distinction: the most indebted ever.

Even as the average U.S. household pares down its debts, the new degree-holders who represent the country’s best hope for future prosperity are headed in the opposite direction. With tuition rising at an annual rate of about 5% and cash-strapped parents less able to help, the mean student-debt burden at graduation will reach nearly $18,000 this year, estimates Mark Kantrowitz, publisher of student-aid websites Fastweb.com and FinAid.org. Together with loans parents take on to finance their children’s college educations — loans that the students often pay themselves – the estimate comes to about $22,900. That’s 8% more than last year and, in inflation-adjusted terms, 47% more than a decade ago.

In the long run, the investment is probably worth it. Education is a much better reason to borrow money than buying cars or McMansions, and it endows people with economic advantages that the recession and slow recovery have only accentuated. As of 2009, the annual pre-tax income of households headed by people with at least a college degree exceeded that of less-educated households by 101%, up from 91% in 2006. As of April, the unemployment rate among college graduates stood at 4.5%, compared to 9.7% for those with only a high-school diploma and 14.6% for those who never finished high school.

Also, graduating with debt might not be all bad. If one buys the argument — popular among private-equity investors who buy companies using large amounts of debt — that the need to meet regular loan payments helps focus people on finding ways to make money, then high student-debt levels might help the country derive more benefit from its best-educated residents (as long as they don’t spend their energy creating financial products that ultimately blow up).

Still, the growth in student debt marks a shift toward a form of obligation that can be a lot more onerous than credit cards or home loans. Student debt can carry interest rates as high as those on subprime mortgages, and it’s much harder to shed in the event of trouble. There’s no house to give back to the bank, and even bankruptcy rarely offers relief. As of December 2010, total student debt outstanding stood at $530 billion in the U.S., up 29% from December 2007, according to the Federal Reserve Bank of New York. Other types of household debt shrank 8% over the same period. Given the state of the job market, many degree-holders will face a long slog to get debt-free: The Collegiate Employment Research Institute estimates that the average salary for holders of new bachelor degrees will be $36,866 this year, down from $46,500 in 2009.

In the near term, the debt burden could weigh on both the housing market and the broader economy. College graduates struggling to pay off debts are more likely to put off major milestones such as leaving home, getting married and buying a house, at a time when the creation of new households in the U.S. remains well below its long-term average.